Compute the Value of a Firm with Free Cash Flows

question 3

Multiple Choice

Compute the value of a firm with free cash flows of $4,000, $4,500, and $5,000 over the next three years, a terminal firm value of $60,000 after three years, and the unlevered cost of capital is 10%. Assume that the interest rate tax shield is zero.

• A) $56,191
• B) $57,234
• C) $58,098
• D) $59,123

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Definitions:

Ending Inventory

The final value or amount of goods available for sale by a company at the end of an accounting period.

Equivalent Units

A concept in cost accounting used to allocate costs to partially completed goods, adjusting for the amount of work done.

Job Order Cost System

An accounting system that accumulates costs for each specific job or project, making it possible to determine the profitability of each.

Production Period

The timeframe during which goods are manufactured or produced, from the start of production to its completion.